Money

Think tank says over-60s have tax breaks that are too generous

Nov 21, 2016

You might not realise it, but the tax system in Australia is skewed in the favour of older adults… Well that’s according to a recent Grattan Institute report.

According to the report, entitled Age of Retirement, the Government could save about $1 billion a year just by winding back three tax breaks that apply to you that it feels are “unduly generous and have no sensible policy rationale”.

Specifically the report address the Low Income Aged Persons Rebate, the Senior Australians Tax Offset and the tax-free status of your superannuation.

According to the report’s author, John Daley, “It used to be that between one-quarter and one-third of seniors paid tax. Now it’s half that.”

There is probably little use crying about how unfair the report is as it is likely Daley isn’t interested.

The report compared two couples — James and Linda who are over 65, and Michael and Jenny who are aged about 40. Both earn a combined taxable income of around $70,000, but with James and Linda their funds are coming from super and investments, while Michael and Jenny are still employed full-time. Of course, James and Linda will be enjoying the Seniors’ Health Cards and they are paying around $4,049 in tax. On the other hand Michael and Jenny are paying $6,894 in tax and this includes the Medicare levy, which is much higher.

“Of course, the other couple will say: I’ve paid my taxes so it’s fair,” Daley tells the Sydney Morning Herald. “The answer is: No, they haven’t paid particularly much tax, and that’s the problem.”

According to the Sydney Morning Herald, it’s great if you happen to like eating smashed avocado on toast in a cafe every weekend, because the amount you are saving equates to around 129 serves of the stuff each year for every Australian couple aged 65 years and older.

Daley says you are paying less tax than the generation before you and you’re also paying less tax than the generation that will come after you.

“Each senior household used to take out of the order of $22,000 and now it’s $32,000… Part of it is super, part of it is a jump in health spending, part of it is a jump in aged pensions, and part of it is a jump in things like the Senior Australians Tax Offset,” Daley says.

According to the report, the solution is simple.You pay less tax and get a higher rebate on private health insurance than do younger workers on the same income. You do so through the Seniors and Pensioners Tax Offset (SAPTO), a higher Medicare levy income threshold, and higher private health insurance rebates that are available only to older Australians. If SAPTO and the Medicare levy income threshold are wound back it would save the Government $700 million a year. Then it suggests reducing your private health insurance rebate so that you only get the same rebate as younger Australians, which would save around $250 million.

It would mean only pensioners would qualify for the Seniors and Pensioners Tax Offset, because if you earn enough for private income then you don’t quality for a full Age Pension.